New economics in commodity market favor better forage management

INDIANAPOLIS — The beef industry is at the beginning of a long-term economic shift, says Dr. Derrell Peel, livestock marketing economist at Oklahoma State University. And it’s a shift to – or maybe back to – forage.

“The cattle industry from the 1960s to 2006 was based on cheap grain and cheap energy,” he said. “Late in 2006, the world began to change. Corn prices doubled in a few months. For almost 20 years, corn prices were about $2 a bushel. The trading range for corn now is twice to three times what it was and it’s basically permanent. Feed is no longer the primary use of corn,” said Peel.

Cattle market

In remarks prepared for a “New Age of Forage” media seminar here sponsored by range and pasture herbicide manufacturer Dow AgroSciences, keynote speaker Peel noted the cattle market now wants more pounds produced from forage.

In the past, markets have favored calves over yearlings or yearlings over calves. Now the market wants more production of both, evidenced by higher prices on calves and heavy feeders alike. That’s a function of high corn prices and low cattle numbers.

“This situation with high corn prices and low cattle numbers is the only time like this in history,” Peel says. “It’s not business as usual.”

Producing vs. marketing

It’s been conventional wisdom in the cattle business that producing was easier than marketing. “Now marketing is easy,” Peel says. “You have to screw up to get a bad price for a critter. What you need to focus on is producing and producing cost-effectively.”

Markets will reward those who produce forage efficiently and use it to put pounds on marketable cattle, whether they’re calves or heavy feeders.

“For the foreseeable future, there is more value in forage,” Peel says. “For the first time in two generations, we have an incentive to manage forage right.”

Grain finishing

Long-term – beyond five years – Peel sees a big role for stocker operators. For fed cattle economics to work, the industry will have to keep feeder cattle on forage longer before grain finishing. Peel does not foresee grass-fed beef growing much beyond a niche market. But the industry will change from its grain-intensive past to a forage-intensive future, he says.

“In the past, I don’t think we looked very hard at better management of pastures because we didn’t have a reason. Cheap corn substituted for a lot of sloppy forage management.

USDA Choice

Going forward, the industry will learn how to use the least amount of grain and still produce a USDA Choice product, he predicts.

“I don’t know what’s possible. I know there are more possibilities than we’ve thought about,” he says. “We can do production in different ways. We can emphasize forage. We should be looking at new forages and looking at different forage systems.

“But status quo is not what we’re about. I see it as an enormous opportunity for the industry.”